Practice accounting for clinicians who are also business owners.
A practice generates high, relatively predictable income — which makes structure, retirement plan design, and compensation the levers that matter most. We handle the monthly accounting and then use it to reduce the effective tax rate on what the practice earns.
General dental practices; specialty practices typically run lower.
Of adjusted production; below this, the issue is usually front-office process.
Annual deductible contribution range for an older owner-clinician with a favorable staff census.
Where medical & dental practices lose money on accounting.
Entity structure and California's professional-corporation rules
Physicians and dentists in California generally practice through a professional corporation, which limits the ownership and election options available to other businesses. Structure decisions have to satisfy the licensing board and the tax objective at the same time.
Reasonable compensation is the audit trigger
Owner-clinicians taking S corporation distributions must support a defensible salary. Too low invites reclassification and payroll tax with penalties; too high forfeits legitimate savings. We document the position with role and market data.
Retirement plans are the largest untaken deduction
A profitable practice with few employees can often shelter far more than a SEP allows through a 401(k) with profit sharing, or a cash balance plan layered on top. The design has to pass nondiscrimination testing with the actual staff census.
Equipment, build-out, and cost recovery
Chairs, imaging, lasers, and tenant improvements each recover on different schedules. Section 179, bonus depreciation, and a cost segregation study on an owned building change the timing of the deduction substantially.
What a medical & dental practices engagement includes.
- Monthly close, production reporting, and collection-rate analysis
- Professional corporation and S election structuring
- Reasonable compensation study and documentation
- 401(k) profit sharing and cash balance plan coordination with your TPA
- Equipment, build-out, and cost segregation planning
- Associate versus partner compensation modeling
- Multi-state licensing and filings for clinicians practicing across state lines
Medical & Dental Practices: direct answers.
Should a medical or dental practice be an S corporation?
Often, yes — but in California a licensed clinician generally must operate through a professional corporation first, which can then make the S election. The benefit comes from paying a reasonable salary and taking the remaining profit as a distribution not subject to payroll tax. The savings are real only if the salary is documented and defensible.
What is reasonable compensation for a physician or dentist owner?
It is the amount the practice would pay an unrelated clinician to perform the same clinical and administrative work, supported by market survey data, hours, and role. It is the single most common point of IRS challenge for owner-clinicians, so the analysis belongs in the file before the return is filed — not after a notice arrives.
How much can a practice owner contribute to a retirement plan?
A 401(k) with profit sharing allows substantially more than a SEP for most practices, and a cash balance plan layered on top can push the total deductible contribution into six figures for an older owner with the right staff census. The correct design depends on employee ages and salaries, so it is modeled, not assumed.
Is a cost segregation study worth it for a practice?
If the practice owns its building or funded a significant tenant improvement, usually yes. Segregating the build-out into shorter-lived components accelerates depreciation into the early years, which is most valuable when the owner is in a high marginal bracket now.
Ready to work with a CPA firm that treats your finances like their own?
Schedule a complimentary consultation with Selim Hanna, CPA, and see how strategic advisory can protect and grow your business.